You Can't Use A Contract To Take Advantage of Someone

In HayJo v. Sponge-Jet, Cornell Dolan, P.C. persuaded U.S. District Court in New Hampshire to recognize that New Hampshire common law includes covenant of good faith and fair dealing.

When you sign a contract with someone, the contract sets out what you are supposed to do and what the other side is supposed to do. But in many states, a contract also requires something extra, something not stated in the words of the contract. When you sign a contract, you cannot use the contract to take advantage of someone.

This "implied covenant of good faith and fair dealing" often crops up in employment cases: an employee is supposed to get a handsome bonus, but gets fired just before that bonus was to be paid. But it can also come up in disputes between companies.

We have been representing Sami Hayek, a prominent Mexican oil industrialist, in a dispute with a New Hampshire company that makes industrial cleaning supplies, Sponge-Jet, Inc. Hayek (who also happens to be the father of actress Salma Hayek) alleged that Sponge-Jet terminated his company's contract just before he was to realize his profit, after working at it for seven years.

Sponge-Jet filed a motion for summary judgment, arguing that the claims should be dismissed in part because New Hampshire law does not recognize the implied covenant of good faith and fair dealing.

In an opposition to that motion, Timothy Cornell pointed out the cases in New Hampshire and elsewhere that suggested strongly that the covenant existed in New Hampshire law.

In an opinion available here, U.S. District Judge Joseph DiClerico agreed with Timothy's take and issued the clearest statement yet that New Hampshire contracts require fair dealing.

The opinion also may well mark the first time that a New Hampshire judge has recognized that a company can be liable for aiding and abetting a breach of fiduciary duty.